Yet another reason to be optimistic on the USA

Not only we are becoming more competitive (thanks to cheap natural gas, rising labor productivity and increasing labor costs abroad)...

Here is a more compelling reason. We are the most competitive in beer!

According to the Economist chart of the day it takes an american worker about 6 minutes of labor to get a beer...

We should be done for the day in about an hour!!!  Life in India or the Philippines pales in contrast..

Seriously now... The low cost advantage of China is fading.

The prestigious BCG (Boston Consulting Group) projects that by around 2015, the U.S. will have an export cost advantage of 5 percent to 25 percent over Germany, Italy, France, the U.K. and Japan in a range of industries. Among the biggest drivers of this advantage will be the costs of labor, natural gas, and electricity. As a result, the U.S. could capture 2 percent to 4 percent of exports from the four European countries and 3 percent to 7 percent from Japan by the end of the current decade. This would translate into as much as $90bn in additional U.S. exports per year, according to BCG's analysis.

Look at this video from Hal Sirkin at the Boston Consulting Group.

So... How much do companies pay in taxes?

Now that we know how much Mr. Obama and Mr. Romney pay in taxes, one should ask how much do firms pay...

In textbooks, it is always assumed a flat 40% tax rate.

It turns out that this figure is far from realistic. The following chart from FRED, Federal Reserve Bank of Saint Louis shows that the number is much more likely to be in the late teens (17 to be exact).

The picture is not much better on the personal side....Textbooks say it is 35% for top earners and 10% at the bottom.  Look at the following chart prepared using IRS data for 2009, on taxes paid by citizens

Who (besides me off course) is paying taxes?

Use this information wisely.

PIGS vs. BAM !!

Much has been written about the debt levels of the PIGS (Portugal, Ireland, Greece and Spain). THere is not a half decent blogger/economist who has not predicted their collapse.

Here is another angle.. Compare the PIGS against the BAM... (Brazil, Argentina and Mexico)

Look at this chart... Manufacturing labor costs ..I added the US and Germany for reference.

Source: Bureau of Labor Statistics, Division of International Labor Comparisons, International Comparisons of Hourly Compensation Costs in Manufacturing, 2010

Stocks, lemonade and pizza

Most companies’ beginnings are humble. Those who survive the treacherous first years find themselves needing money. Remember your sister’s lemonade stand? (If you don’t have a sister, or she did not have a stand, just humor me). They need money to grow (if you want to sell more lemonade you need more lemons, and maybe a bigger blender and eventually a refrigerator, a truck, an accountant and a lawyer). In order to get this money, business owners are willing to split their ownership into smaller pieces called shares or stocks… Think pizza

Before the expansion, your sister owned the whole Lemonade stand, 100% of it.

In our case, your sister  is willing to sell a share of her pizza in exchange for the money needed to grow her business. She will no longer own 100%. Depending on how much money she needs she will have to sell more or less shares.  If this is the first time you sister does this sale, it  is called “going public” or IPO, Initial Public Offering

Your sister’s share on the company after the IPO

A shareholder’s share on the company after the IPO

A share of stock is the smallest unit of ownership in a company. If you own a share of a company’s stock, you are a part owner of the company.

Why would anybody buy share on your sister’s lemonade stand?

Share buyers, AKA investors or shareholders buy shares because they believe in the business, they believe that your sister will be a successful lemonade stand owner. In particular they have two basic reasons;

        a)     Your sister is now obligated to share the profits of the lemonade proportionally with all other shareholders. Your sister will send a quarterly check to shareholders. This is called a dividend.

        b)     The investor hopes he or she may be able to re-sell the share at a higher price than he/she paid for in the future. This is called capital gain.

An alternative way to finance her business

What if your sister did not want to let go control/ownership of her company? Did she have any options? The answer is yes. She could have borrowed the money from your parents (bank). We would call them debt holders. In this case your sister needs not to share profits, only to repay what she borrowed (plus interest). 

Separation of Management and Ownership
After a few years, there would be hundred if not thousand of of owners. This makes it practically impossible for  owners (principals) to  run their own company. They must hire managers (agents) to do the work.  Just imagine how long it would take all owners of Toyota trying to agree on what a new model should look like.

An important conflict arises when managers (the agents) entrusted to look after the interests of others (the principals) use their authority or power for their own benefit instead. 

It is a pervasive problem and exists in practically every organization whether a business, church, club, or government. Organizations try to solve it by instituting measures such as tough screening processes, incentives for good behavior and punishments for bad behavior, watchdog bodies, and so on but no organization can remedy it completely because the costs of doing so sooner or later outweigh the benefits of the results. 

Brazil, infrastructure, world cup, olympics and finance

A great piece on the FT showcases the construction boom in Brazil... Stadiums, roads, airports, trains... You name it, they will have to build it... All of the above need a lot of metal

A rising tide lifts all boats, shouldn't Vale be an obvious winner?

What is most telling, for me at least, Brazil loses 10 - 15% of GDP yearly because of bottlenecks in its poor infrastructure... If you think this is an exaggeration, think about this; a trucker on his/her way to the port may spend up to 3-4 days waiting to unload its cargo... A railroad, a port, a road in Brazil, privately built can have a great multiplier effect.

Better yet, Brazil's government does not need to spend the money. Private capital will.

Can this be true? Aren't we reminded by our authorities over and over, the US is in great need to upgrade its infrastructure. The choices we are given are taxes or "no" (as in we will just not do it).


With the World Cup (soccer) and the Olympics around the corner, Brazil's needs are so much greater than the problems we face. How will they do it? Rousneff should be jealous of Obama's problems.

Not quite.

Brazilians are much more pragmatic. They have just auctioned the rights to build and operate new "Sao Goncalo do Amarante" airport. A Brazil-Argentine consortium has 3 years to build an airport and then 25 years to operate it. Read article here.

How much will Brazilian tax payers pay for this?
Nothing, the consortium actually paid the government for the rights.

Are Brazilian unique?
Not quite, Argentina and Chile have had privately operated major airports and ports for many years. In Mexico, consortiums that operate roads are publicly traded companies

Who pays? Those who use airports and roads and ports.

Imagine the possibilities.

From exporter to FDI, Mexico moving into the US

A very nice account by Adam Thomson of the Financial Times on how Mexican businesses are overcoming obstacles to establish themselves in the heart of America.

No longer exporting cheap materials alone.

Read and pass along.

Outlook versus attitude

I just returned from a short trip to my natal Chile where I travel quite often.


News are generally good there, for example, since 2009, the peak of the crisis, a new report shows poverty has declined from 15.1 to 14.4%... Surely the levels are nothing to cheer for, but the trend and the timing matter. The best news is that extreme poverty dropped from 3.7% to 2.9%.


Furthermore, construction is up 11% this year alone (April). Recently, Chile was rated by IESE as the best country in Latin America for private equity and venture capital.

Yet, Chilean consumers don't seem to be too optimistic... Go figure